"China trade split. A US recession is overdue; 3) Defense firms will need to fund more of their own R&D in the future so joining a larger firm will limit margin pressure which could be evidenced in the 2020s", Callan wrote. Once the merger is complete, United Technologies shareholders will own approximately 57% of the company; Raytheon shareholders will own the rest.
For Raytheon, the agreement provides exposure to the commercial aerospace sector through the United Technologies' unit, which produces everything from high-value jet engines competing with GE, to cockpit controls, airplane seats and cabin interiors.
The combined company, which will be named Raytheon Technologies Corporation, will offer expanded technology and R&D capabilities to deliver innovative and cost-effective solutions aligned with customer priorities and the national defense strategies of the USA and its allies and friends.
"An RTN-UTX deal may be a signal (a siren?) that 1) this USA defense cycle is peaking, and firms need to start repositioning for growth in 2021 and beyond; 2) Maybe the commercial aerospace outlook is looking wobbly too and Western firms need to hedge against fallout from a U.S". Raytheon Chairman and CEO Tom Kennedy will be appointed executive chairman.
The merger, announced Sunday, will close in the first half of 2020 after United Technologies completes the separation of its Otis and Carrier businesses.
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Chinese authorities scrutinized United Technologies' Rockwell Collins acquisition heavily, given its footprint in that country's market.
Further, the two companies project annual cost-saving of $1 billion beginning in the fourth year after the close of the transaction. This resulted in the deal closing in November, 2018, as opposed to the third quarter of that year, which the companies initially targeted. The combination excludes Otis and Carrier, which are expected to be separated from United Technologies in the first half of 2020 as previously announced. He'll be the new company's executive chairman.
Raytheon makes missile defense and radar systems, including the Patriot missiles, and other military technology used by militaries around the world. Raytheon will contribute seven of the 15 board positions, including the lead director.
United Technologies could benefit from reducing its exposure to commercial aerospace clients amid concerns that the rise of global trade protectionism will weigh on the flow of goods through air traffic. That would top giants like Lockheed Martin Corp. and Northrop Grumman Corp.
Several Wall Street analysts sent notes outlining the positives for both companies and, with no premium in the deal for either company's shares, United Tech and Raytheon's stock prices jumped respectively by 4% and 8.3% in premarket trade. Citigroup Inc was financial adviser to Raytheon, and RBC Capital Markets LLC provided a fairness opinion.